Tudor Pickering Holts’ Permian Basin Frac Sand Update from “Energy Thoughts” email of August 4, 2017:
- Permian frac sand update (part 1) – based on discussions with mutiple industry participants, Permian frac sand contract prices sit at quite attractive
levels (~$50/ton+) despite some rumblings of lower prices (OIH $25) – FANG noted they inked a contract for Permian sand with Black Mountain Sand
and while we’ve no direct color on this contract in particular, our channel checks / relationship with other frac sand players indicate pricing
for Permian silica generally sits in the $50/ton+ ballpark. Some exceptions exist for those players who need capital to execute on projects (i.e.
some undercapitalized players are aiming aim to attract pre-payments to help fund their developments are allegedly low-balling at ~$45-50/ton.
- Permian frac sand update (part 2) – while it’s well publicized that ~50mmtpa+ of “in-basin” Permian sand is being permitted, it’s not well understood
how much will be built and sellable (OIH – $25) – Our base case assumption is that even if 40mmtpa+ of Permian sand were built and 100% utilized,
Northern White / other regional volumes would be needed in basin setting marginal cost higher than most folks believe today. That said, permitting,
regulatory, environmental, contracting, financial and operational headwinds are real and will almost invariably delay certain projects, quelling
some indefinitely. This all seems to fall on deaf ears at the moment, but it shouldn’t.
- Permian frac sand update (part 3) – The best-laid plans of mice and men often go awry (OIH $25) – Multiple projects in the permitting queue sit sans
financial backing and/or in the hands of those who’ve yet to sell sand nor sign commercial contracts…yet they’re presumed to be done-deals
by the market today. This is simply not true nor is it true that all the mines built will run at full capacity. Apart from grade-mix / quality
issues (i.e. some in-basin 40/70 is 4-5k psi), if you don’t have your Air NSR (“big boy air permit”), your facility may be restricted to ~3.2-3.5mmtpa
based on limitations around the tonnage of sand per hour loadable into the wet plant…and those NSR permit times are apparently stretching
meaningfully (TPHe from ~6 months to up to 2 years) based on our discussions with industry participants.